Types of Contracts: Your Guide to Legal Agreements

independent contractor agreementThere’s a lot of legal mumbo-jumbo involved when people discuss contracts. But instead of twisting your tongue with Latin jargon, we’ll guide you through the types of contracts as simply as possible.

Contracts are mutual agreements between two or more parties. These agreements involve obligations that the court can enforce. This just means that the obligated party has to do what he agreed to, otherwise he could end up sitting pretty in a jail cell. And for tips on negotiating your own contracts, check out this well-reviewed course.

Seal Traditionally Contacts

These contracts are enforceable by the courts if stamped with a seal. The seal acts as a sort of “I agree to the terms & conditions” checkbox, signifying that the people involved in the deal understand the legal consequences of their agreement.

Back in the day, all contracts were only valid if sealed. Today, the seal isn’t an absolute deal anymore. Courts began to recognize informal contracts too, because it made more sense. Some agreements are made without the benefit of having time to issue a seal, like implied contracts or agreements made on someone’s deathbed.

Express Contracts

No, express contracts aren’t those made on a train. These contracts have definite oral or written offers that are clearly accepted by the other party. They’re called express contracts because by their nature they expressly show that the parties have agreed.

Say you’re looking for an apartment, the landlord gives you the terms, you accept, sign the document—that’s an express contract. When you hire a contractor to build something, he makes a bid for the project and you accept— that’s also an express contract. The signing deals musicians have with record labels are express contracts. Most contracts fall under this category, as they are pretty straightforward.

Implied Contracts

Implied contracts are the opposite of express contracts, but they are just as valid. They still involve mutual agreements, but these aren’t expressed. This makes them slightly trickier. You have to prove that the other party actually intended and understood his implied promise, without evidence of him saying it or writing it out.

  • Contracts Implied in Fact

The legal phrase to describe agreements like those is “contracts implied in fact”. They draw from facts and circumstances that have got to clearly show the mutual agreement. There can’t be contracts implied in fact where the result would be harmful or unfair to either party. It also isn’t an implied contract if one of them had doubts or disagreements.

  • Contracts Implied in Law

There are also “contracts implied in law”, which are quasi-contracts. That just means they don’t have all the characteristics that make up a contract. But sometimes, they are treated as contracts to remedy certain circumstances. In these cases, the agreement of the parties is caused by the law, not the other way around.

Executed and Executory Contracts

  • Executed Contracts

What happens when the obligation in a contract is completely fulfilled? The contract becomes an executed contract. There is nothing further to be done by either party involved. It’s a bit paradoxical, because once a contract is completed, it no longer exists. Still, for discussion purposes, we call them executed contracts.

  • Executory Contracts

An executory contract is one that still has obligations to be executed. The terms of the contract remain unfulfilled, and the parties involved still have to make good on their agreement. For example, when you buy a car and decide to pay in installments. You still have an obligation until the installments are over. That’s an executory contract.

Bilateral and Unilateral Contracts

  • Bilateral Contracts

A bilateral contract involves a reciprocal promise. It works both ways between two parties. This is also called a two-sided contract because there are two promises involved. One party makes a promise that constitutes consideration for the other party’s promise.

  • Unilateral Contracts

A unilateral contract involves a promise made by one party to another. One party promises to do something if the other performs a legal act. The former is called the offeror, and the latter is called the offeree. If the offeree performs the proposed act, he accepts the contract in the eyes of the courts.

Only the offeror is legally bound in this case. The offeree can’t be sued for not performing or for abandoning the performance once it’s been started. He hasn’t made any promises, and he’s just accepting an offer.

Unconscionable Contracts

An unconscionable contract is one that gives too much power to one of the parties. It involves an agreement that no rational, fair, or honest person would enter into. These usually happen when someone exploits another who is poorly educated or impoverished.

Remember, the primary goal of the judicial system is to enforce justice and fairness. They examine cases like this to avoid having to enforce obligations that are unfair, indecent, and an affront to the integrity of the courts. For tips on sealing the deal without dishonesty, this course can help.

Adhesion Contracts

Adhesion contracts are like “take it or leave it” contracts. They are drafted up by the party who has a big bargaining chip. The other party can only either adhere to the contract or reject it.

In certain situations, especially in business, it would be time consuming if every contract had to be negotiated all the time. That’s why adhesion contracts exist. They aren’t always unconscionable because the terms don’t always exploit the other party.

Still, the courts dislike enforcing these contracts because there’s almost no choice in the matter. Contracts should be made based on a proper agreement where you can actually negotiate. If it’s a take it or leave it kind of deal, there’s no room for negotiation at all.

Aleatory Contracts

An aleatory contract is a conditional contract. In these types of contracts, the obligation involved is triggered by an uncertain event happening. One or both parties will have to take on some risk present in the contract.

Consider your basic fire insurance policy. This is a great example of an aleatory contract. The company is obligated to pay you policy proceeds only if a fire happens. You accept the risk that a fire will never occur, and you won’t get paid, and the company accepts the risk that a fire will occur and they must pay.

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Void and Voidable Contracts

  • Void Contracts

Void contracts aren’t enforceable by the courts. Something about the way they were created makes them have no legal basis. The contract itself is harmful in nature, or onerous (the obligation is too heavy to bear). In a way, they’re not contracts at all!

The strange thing is that if the party never contests the contract, the contract isn’t void. A contract only becomes void once the party contests it. The minute he finds something wrong with the nature of the contract, it can be voided in the courts. It’ll only work if his objection is valid though.

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  • Voidable Contracts

Unlike void contracts, a voidable contract can be legally enforced. The contract is still valid, but if the party was a victim of fraud or under a legal disability when it was created, it becomes non-binding.

This is a bit tricky. Think of it this way: You bring a case to the courts and ask them to enforce your contract, maybe because the other guy is bailing on you. If the contract turns out to be void, the courts can do nothing.

If the contract turns out to be voidable, the courts can do something about it. But if it’s voidable and the courts find out that either of you was legally incapacitated when the contract was made, it becomes non-binding.

  • Ratification

What if a legally competent party expressly accepts the terms of that non-binding contract? What if they accept it even if they weren’t legally competent when it was made? If the party says, “I agree to this voidable contract knowing full well the circumstances, and I promise to perform it,” this is called an express ratification.

If that party performs or intends to perform the terms of that contract without saying anything, that is called an implied ratification. Still, there’s got to be clear intent and complete awareness of the circumstances. When you ratify, it’s like you formed a new, binding contract with the same terms as before.

A Final Tip

In the big adult world of business deals and formalities, agreements are very important. It can cause a whole bunch of trouble if promises are broken. People make agreements over important things like inheritance, ownership, business, etc. Contracts exist so that people won’t easily get away with skipping out on a deal.

The judiciary system and the courts are there to enforce justice and order, but they should be a last legal resort. In our daily lives, we should strive to be persons of integrity and order, too. There are tons of contract types, just as there are so many circumstances we can get ourselves into. So if you don’t want to go through the headache of memorizing them all, it’s best to keep your word!

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